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Asias crisis-hit countries made dramatic improvements in their current account balances in the late 1990s, according to a New York Fed study. The authors, Matthew Higgins and Thomas Klitgaard, find that the four crisis countries examined accomplished this chiefly through lower imports, measured in dollar terms, with export sales largely unchanged.

The authors explain that Indonesia, Malaysia, South Korea, and Thailand experienced an abrupt shift from foreign capital inflows to outflows associated with the 1997-98 currency crisis. Countries undergoing such a shift have to make a matching improvement in their trade balances that moves them from deficit to surplus.

Higgins and Klitgaard also find that:

Dollar import and export prices fell together in the crisis countries, with both tied to world prices.

Export volumes rose as world demand outside of Asia grew, while import volumes declined sharply with the fall in domestic economic activity in the crisis countries.

Matthew Higgins, formerly a senior economist at the New York Fed, is a vice president at Merrill Lynch Global Economics; Thomas Klitgaard is a research officer at the Fed. Their article--Asias Trade Performance after the Currency Crisis--is being published in the Banks Economic Policy Review.